The mining industry is faced with several challenges and risks which need to be effectively addressed, as, when one compares the risks the mining industry faced in the prior year with the current year, overall, they have not changed, says advisory firm PwC assurance partner Andries Rossouw.

However, he says that what has changed is the priority of rankings allocated to the different risk exposures.

In the current year, most companies increased their focus on environmental compliance and liquidity risk.

“Many mining companies are in the process of renegotiating the terms of their debt facilities with financial institutions, or will be doing so in the near future. Given the current environment of low commodity prices and high production costs, it seems inevitable that some companies may not be able to make large terminal repayments from profits and may have to enter into negotiations with loan providers to agree on more with workable arrangements,” Rossouw states.

In addition to the high-profile risks identified, PwC also anticipates other risks that are likely to arise in the coming year. These include uncertainty on the Mining Charter reporting outcome, water scarcity and productivity challenges at selected mines.

Rossouw points out that, despite the challenges the sector faces, the mining industry continues to be a significant contributor of value. The monetary benefit received by each stakeholder in the industry is usually summarised in mining companies’ value-added statements.

Employees received 39% of the value created, which was up from 37% in 2014. He explains that the impact of the increased wages, relative stable employment numbers and lower price environment has contributed to this increase.

The State received 18% of value created, consisting of direct taxes, mining royalties and tax on employee income deducted from employees’ salaries. However, this was down from the 20% recorded in 2014.

Rossouw says that the actual contribution received by the State is significantly higher, however, with direct taxes, such as VAT and import and export duties, also being collected.

Distributions to shareholders represented 15% of total value increase, which was up from the 11% achieved in 2014. He points out that, if JSE-listed iron-ore miner
Kumba Iron Ore’s results are excluded, the dividend percentage declines to 3%, which is, however, higher than the 2% recorded in 2014.

“Currently, the challenge faced is determining how to increase the size of the pie to create more value for all stakeholders in an environment of ever-increasing costs, reducing margins and increased volatility.

“Creating an environment with adequate infrastructure, less policy and regulatory uncertainty, and a skilled, yet flexible, workforce should go a long way towards attracting investment and benefiting all stakeholders,” concludes PwC African mining industry leader Michal Kotze.